Following a major consultation and significant redrafting of the rules, from 17 November 2018, the amended FMCC is in effect.
Click here to download our Fund Manager Code of Conduct Cheat Sheet to see the new and updated elements at a glance. Or read on for an overview of the amendments.
Significant change for buy-side firms
The revised FMCC sets out standards and requirements for all fund managers, with additional obligations in particular for those who are “responsible for the overall operation of a fund” (known as the ROOF manager). As well as a greater focus on the risk management function, enhancements to liquidity monitoring and valuation practices, the SFC have gone further than other global regulators on imposing prescriptive requirements around collateral management where funds are undertaking certain securities financing transactions.
In addition, the regulator imposes many more obligations to disclose specific information to fund investors, including details of fund’s lending, leverage, repos and reverse repo transaction policy, fund portfolio valuation, custodian details and liquidity risk management.
Practical actions you need to take to meet the new FMCC
Fund managers now have little time to review and amend relevant documentations to meet requirements set out in the new FMCC. Here are six actions you should make sure you have completed.
- Review and/or revise discretionary account client agreements to ascertain all terms and conditions are in line with the requirements of the amended FMCC.
- Review custody agreements to ensure no gaps leading to non-compliance. Fund managers should ensure a formal custody agreement is in place and such an agreement should contain provisions such as segregation arrangements and conflict of interests.
- Perform a gap analysis on the existing valuation policies, and ensure the fund manager will retain ultimate responsibility for the valuation performed by independent third party. Fund managers should also start their first review of valuation policies and procedures within 12 months from the effective date of the revised FMCC.
- Go through relevant risk management documentation, including risk profile, prospectus, marketing documents, DDQs and PPM, to see whether they contain sufficient information for customers to make an informed decision. Establish risk management procedures to cover market risk, liquidity risk, issuer and counterparty credit risk and operation risk under the revised FMCC.
- Review or establish liquidity management policies and procedures, making sure they enable the efficient monitoring of the liquidity of the fund, both in normal and in various stress scenarios, and be able to assess and attempt to mitigate the impact of severe adverse changes in market on liquidity.
- Update the compliance manual, especially reviewing sections regarding personal account dealing and business continuity plan, to reflect the latest change to the FMCC.
How Bovill can help
If you have any doubt in meeting the coming compliance requirements, Bovill can help you in assessing your compliance status, revising your existing compliance policies and procedures, and drafting new compliance and/or risk management policies to comply with the new code.